Addressing Richmond's Economy

Jan 21, 20215 min read

2020 was a detrimental year for many local economies and Richmond, Virginia was no exception to this. Richmond is a pivotal local economy within Virginia. Its economy generated 78.702 billion of 2012 chained dollars, which only trails the Washington and Virginia Beach metropolitan areas (FRED). With Richmond being home to around 225,000 people, the local government needs to promote an economy that encourages consumer confidence and business activity.

Many cities are dealing with fragile and volatile markets, and it is important for local governments to create sustainability for all income classes. Lower-income classes face the greatest hardships of this pandemic, as they are likely to have trouble paying for basic necessities and other vital expenses. Thus, the upbeat culture that Richmond embodies is currently only attainable to those with disposable incomes. Correspondingly, local government policy should aim their focus at them in order to keep Richmond as their home.

With decreases in general demand for goods and services, small businesses are struggling to keep up with evolving consumer habits. Many individuals are purchasing their things online since it is the safest way to obtain items during the pandemic. This lack of in-store traffic has put small businesses in jeopardy. For the Richmond community, losing small businesses will permanently hurt the flair of the city. Apart from the Coronavirus, Aid, Relief, and Economic Securities (CARES) act, small businesses have fended for themselves in the face of a struggling economy.

Employment and Poverty

Poverty has been and continues to be Richmond’s biggest issue. Even before the pandemic even started, 23.2% of people lived below the poverty line (U.S. Census Bureau). It is safe to assume that with the current poor job market, even more people are falling under the poverty threshold. As evidenced by the graph below, the last reported unemployment rate in Richmond was 5.0% (BLS). The unemployment rate has steadily declined as the pandemic has progressed, but it is unlikely that it will reach pre-quarantine levels anytime soon. After our last recession from 2007-2009, it took 76 months for employment to recover fully (BLS).

Looking at previous recessions, it is difficult to imagine that Richmond’s job market will recover quicker relative to other major cities. This can be attributed to the fact that Richmond companies are having “difficulty finding qualified workers'' (Federal Reserve); even in a major city like New York, hiring activity has struggled to pick back up. With the job market only modestly improving in Richmond, poverty levels are bound to increase. The national poverty rate was 10.5% in 2019, and Richmond lags way behind that (U.S. Census Bureau). Richmond also struggles with poverty more than similar cities like Raleigh, Durham, and Charlotte, as evident below.

Business Environment and Financial Services

It is difficult to generalize Richmond’s business environment, but some industries are gravely in danger. In a survey recently conducted by the National Restaurant Association, “58% of restaurant owners in Virginia reported that they will be gone in six months without financial help”. The Federal Reserve Bank of Richmond also recently observed that “several industries continued to see business below year-ago and pre-COVID levels”. Through the summation of these sources, it is uncertain when Richmond’s business will be able to fully recover. The CARES Act was vital for keeping many businesses from declaring bankruptcy, and they are likely to receive more aid through Joe Biden’s recovery plan. In Biden’s American Rescue Plan, $15 billion will be allocated to the “hardest hit businesses,” while $35 billion will be allocated to “small businesses”. The President’s new programs will hopefully revitalize local economies and push us towards an economic recovery (CNBC).

Housing

Even though we are in a depressed economy, housing prices are quickly rising. Richmond’s housing price index (HPI) is currently higher than it was before the Great Recession in 2007. The HPI is frequently used to monitor economic trends happening in the country; a rise in house prices can signal that consumer spending and aggregate demand will generally fuel an expansion of the economy (Investopedia). Paradoxically, this is not what the country or Richmond is currently experiencing. Additionally, the construction industry has stirred away from residential investments as it “fell by 35.6 percent at an annualized rate in the second quarter of 2020” (Richmond Federal Reserve).

These “record-low mortgage-interest rates” have caused home prices to rise in the past year (Wall Street Journal). The dramatic uptick in the HPI since 2014; however, should not point towards another housing bubble. Since the Great Recession, mortgage lending practices have become more strict and fair. In other words, only people that can afford a mortgage will be able to purchase a home. Additionally, given the extreme economic consequences from housing speculation (through derivatives and other financial instruments) before 2007, financial institutions have paid more attention to the level of house prices and quality of mortgage loans.

Nevertheless, it is a troubling sign that homes are becoming less affordable as many people deal with a loss of income. Higher prices for houses also means that people “have to take out larger mortgages for longer periods of time” (Positive Money). Due to the increased demand for housing in Richmond, it can be harder for individuals to find a place to live. This is especially important to those who have faced a loss of income and are unable to afford a mortgage or rent. With home sales reaching a 14-year high, housing prices should be a concern for all Americans looking to find a home to live in (Wall Street Journal).

Possible Adjustments to Richmond’s Economy?

As someone that has lived near the Richmond area for their entire life, it hurts to see a large portion of our population living below the poverty line and so many businesses on the brink of bankruptcy. Everyone deserves the opportunity to enjoy a city that is rich in culture and history; in Richmond, this is sadly not currently the case. Now the question that arises is: “How do we address all of these economic issues?”. Taking a look at the chart below, it is evident that the income inequality ratio is quickly expanding (the top 20 percent of earnings divided by the mean income of the bottom 20 percent of earners) in Richmond. With that in mind, the Richmond government should focus budget legislation on this single issue.

There is no simple answer to addressing poverty in Richmond, but it could be worth reallocating the city’s budget towards exploring programs like basic income. A majority of Richmond’s expenses go towards public safety; funneling that money towards people that need it most could have positive effects on our community. By finding a way to end poverty within the city, Richmonders could live happier lives knowing that they have their basic necessities paid for. As their quality of life greatly increases, they will have the opportunity to more actively participate within our community.